This dispute came before me as a trial matter. The parties agreed to dispense with the need to call oral evidence there being no disputes of fact arising from the facts. Thereafter, the parties filed heads of argument and a Statement of Agreed Facts.
After argument, the court granted the following order;
“IT IS ORDERED THAT:
1. The defendant shall give vacant possession of No.7 St. Michaels Lane, Borrowdale otherwise known as the remaining extent of Stand 10 Reitfontein Township of Lot 1AB Reitfontein measuring 4,714 square meters within (7) seven days from the date on which the order is served on the defendant.
2. If the respondent, or any person occupying the property through him, remains on the property after that date, the Sheriff is authorised to remove them and their possessions from the property.
3. Payment of holding over damages in the sum of US$2,000 dollars per month from the 7th of February 2013 to the date of ejectment.
4. Costs of suit.”
Brief reasons for the order were given. The court has now been requested for detailed reasons for its order.
The salient facts of this dispute are common cause.
On 12 July 2013, the plaintiff issued summons claiming the ejectment of the defendant and all persons claiming occupation through him from No.7 St Michael's Lane, Borrowdale, Harare and holding over damages at $3,000 per month from January 2013 to the date the defendant vacates the property.
The plaintiff is the registered owner of the property in dispute having bought it at a sale in execution and subsequently transferred it into its name. The defendant, who is in occupation of the property with his family, has refused to vacate the property.
The brief background of this case is aptly summarised in the Statement of Agreed Facts as follows;
“1. A judgment by default for the payment of an amount of US$415,951=91, under case number HC5917/10, was obtained by Kingdom Bank against the defendant, Dreibond Investments (Private) Limited (“Dreibond”) and 9 other defendants on the 14th of February 2011.
2. The judgment also provided that a certain piece of immovable property known as certain piece of land situate in the District of Salisbury called the Remaining Extent of Stand 10 Rietfontein Township of Lot 1AB Reitfontein measuring 4,714 square meters (“the Property”) be declared executable.
3. The Property was registered in the name of Dreibond. Dreibond is not a trading company.
4. The defendant holds all the issued shares in Dreibond.
5. The directors of Dreibond, as per the Company Office records, are Louise Nielson-Doran and the defendant.
6. A writ of execution against immovable property was issued in matter HC5917 on the 15th of April 2011.
7. The Property was attached into execution and duly advertised for sale by public auction on the 19th of October 2012.
8. The Plaintiff, represented by Tsitsi and Prince Zireva, bid for the Property, and the Sheriff for Zimbabwe, on the 7th of November 2012, duly declared the Plaintiff the highest bidder and purchaser of the Property at a purchase price of US$284,000.
9. The Property was transferred to and registered in the name of the Plaintiff on the 5th of February 2013.
10. On the 7th of February 2013, the Plaintiff demanded that the Defendant vacates the Property.
11. The Defendant has refused to vacate the Property and contends that he has the right to remain in occupation in terms of a lease agreement allegedly executed between Dreibond and his wife, Louise Nielsen Doran, on the 28th of September 2012. A copy of the alleged lease agreement is attached hereto marked Annexure “A”. The alleged lease agreement provides for the payment of rentals at the rate of US$1,500 per month.
12. The Defendant and/or his wife have not paid any rentals whatsoever to the Plaintiff. The Defendant tendered rent to the Plaintiff on the 24th of July 201.
13. The Defendant and the other 10 defendants applied for the rescission of the default judgment of the 14th of February 2011 under case number HC9634/11. The application was dismissed on the 17th of October 2013. Judgment HH363-13 refers.
14. On the 19th of March 2013, the Plaintiff obtained a report from Clipcrunt Real Estate which put market rentals for the property at US$3,000 per month. A copy of the report is attached hereto marked Annexure “B”.
15. Defendant obtained two (2) independent evaluation reports from Estate Agents which put the rentals for the Property at US$1,500. Copies are attached marked as Annexure “C” and “D”.
16. The Parties have agreed that a fair market rental for the Property is in the amount of $2,000 per month.”
At the hearing of this matter, the defendant raised preliminary points which I will deal with in seriatim....,.
The defendant further submitted that the defendant has the lawful right to remain in occupation of the premises through his wife, Louise Nielsen, who has a legal and binding lease with the former owners of the property thus, Dreibond Investment (Private) Limited.
The defendant submitted that the new owner, the plaintiff, is bound to observe and adhere to that lease agreement on the basis of the huur gaat voor koop concept.
Further, that the defendant's wife ought to have been joined to these proceedings on the basis that she is the holder of that lease.
I propose to deal with this point when I deal with the merits of this case as this point is intrinsically intertwined with the merits of this matter....,.
I now come to the merits of this matter.
I will deal, first, with issues related to the making of the lease agreement and the correctness of the parties before the court.
The ownership structure of the company reveals the following:
(i) The defendant is the sole shareholder of Dreibond Investments (Pvt) Ltd, the former owner of the property which is subject of this dispute.
(ii) The company is not a trading company.
(iii) The defendant and his wife are the only directors of that company.
(iv) The property was registered under the defendant's company and was sold in order to settle the defendant and his company's indebtedness to Zimbank Bank.
The cardinal principle is that a company is a separate entity which has a separate and distinct legal existence from that of its members: see Salomon v Salomon (1897) AC 22 (HL). There are exceptions to this rule and these are grounded on policy considerations.
In US v Milwaukee Refrigerator Transit Company (1905) 42 Fed 247…, the court said of exceptions to the rule;
“When the notion of a legal entity is used to defect public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association.”
In such cases, the courts will lift the corporate veil and investigate the activities of the company.
In Cape Pacific Ltd v Lubner Controlling Investment (Pty) Ltd and Others 1993 (2) SA 784 (C) the court held as follows;
“The general principle underlying this aspect of the law, of lifting the veil, is that, when the corporation is the mere ego or business conduit of a person, it may be disregarded. This rule has been adopted by the courts in those cases where the idea of the corporate entity has been used as a subterfuge and to observe it would work an injustice.”
In Waltersteiner v Moir; Moir v Waltersteiner and Others (1974) 3 ALL ER 217 (CA) DENNING MR was prepared to treat various companies through which the appellant, Dr Waltersteiner, had operated as if they were “just puppets of Dr Waltersteiner.” At 1013 of the judgment, LORD DENNING held as follows;
“He controlled their every movement. Each danced to his biding. He pelted the strings. No one else got within reach of them. Transformed into legal language, they were his agents to do as he commanded. He was the principal behind them. I am of the opinion that the court should pull aside the corporate veil and treat these concerns as being his creatures for whose doings he should be and is responsible.”
The evidence that emerged during the trial shows that the defendant and his wife have always been in occupation of the house. They then devised a scheme to save the property from the sale that was imminent. They entered into a lease agreement between themselves on the eve of a sale in execution of the house.
It is necessary to unwrap the lease agreement and reveal its true nature.
On 14 February 2011, Kingdom Bank obtained a default order against the defendant's company. A writ of execution against the property was issued on 15 April 2011 resulting in the property being attached. The property was advertised for sale by the Sheriff on 19 August 2011. The defendant tried to stop the sale by filing an urgent chamber application under HC12308. That application was not to yield any fruit.
The defendant's company states that he only got to know of the default judgment on 19 August 2011 when adverts appeared in the Herald Newspaper advertising the sale in execution. The property was going to be sold on 2 September 2011. The property was sold soon after the urgent chamber application on 7 November 2012.
On 28 September 2011, the defendant's company entered into an agreement of lease over the property. The defendant signed the agreement on behalf of his company. The defendant and his wife continued in occupation of the property.
The lease agreement was entered into after the Sheriff had indicated that the property was going to be sold.
The defendant and his wife were aware, from as far back as April 2011, when judgment was entered against them, that this property was going to be sold. The defendant's company and his wife entered into a lease agreement solely for purposes of defeating the sale in execution that was imminent and so that they could remain in occupation of the property after the sale.
The circumstances of the making of this lease agreement call for the court to pierce the corporate veil and investigate the activities taking place thereunder.
This case is akin to the Cattle Breeders Farm (Pvt) Ltd v Veldman (2) 1973 (2) RLR 261 case. This case involved a husband who used his company to try and evict his wife. The court ruled that the husband could not hide behind the company to seek eviction of his wife.
The defendant has tried to hide behind his wife and the company by leasing the property in issue to her and to escape eviction.
The lease agreement was deliberately offered to the wife even though there is no actual distinction between the wife, the defendant, and the company.
Our courts have held that a husband and wife hold a uniquely special relationship and that they normally have a common interest and household: see Warren Park Trust v Antony Ernest Pahwaringira and Others HH39-09 and Masiyiwa Cleopas Gonye v Stella Mavis Gonye SC15-09.
The facts of the case involved a company formed by the appellant which he, his wife, and sons were shareholders. The court held that the company was part of the matrimonial estate. The court held as follows:
“Stripped of the corporate veil, the proceeds of the farming operations belonged to the appellant. The company was nothing more than the applicant's alter ego. It had no greater rights to the money than he possessed.”
When one considers the defendant's position in the company, and that of his wife, one cannot avoid the conclusion that the property was, before the sale, part of the matrimonial estate of the defendant and his wife.
The transaction entered into is a simulated and dishonest transaction.
The court is not deceived by its form but is concerned about its substance. It appears to me that this is a mere paper agreement. It cannot become a real agreement.
In Kilburn v Estate Kilburn 1931 AD 501 the court held that;
“…, a court of law will not be deceived by the form of a transaction; it will rend aside the veil in which the transaction is wrapped and examine its true nature and substance.”
In Boots Company (Pvt) Ltd v Somerset West Municipality 1990 (3) SA 216 (C)…, the court set out the law on simulated contracts as follows:
“I take the law on this question from the case of Skjelbreds Rederi A/S and Others v Hartless (Pvt) Ltd 1982 (2) SA 710 (A) in particular, I cite the following passage from the (as he then was), reading from p732:
'The law relating to the question of simulated, or disguised, agreements is summed up in the well-known Roamanism, plus valet quod I agituraquam quod simulate concipitur. In Justiniaris Codex 4.22.1 the rule is briefly stated in the following terms: In Contractibusrei veritas debet, i.e. in contract the truth of the matter, rather than the writing, must be looked at.'”
In Zandberg v Van Zyl 1910 AD 302 INNES JA dealt with this subject and held that in a simulated contract, parties enter into such a contract in order to secure some advantage which otherwise the law would not give or escape some disability which the law would otherwise impose. He says, at 309, that such parties;
“Endeavour to conceal its (transaction) real character. They call it by a name, give it a shape intended not to express but to disguise its nature, and, when a court is asked to decide any rights under such agreement, it can only do so by giving effect to what the transaction really is and not what it, in form, purports to be.”
It is easy to detect this simulation.
This is to be done by considering the facts leading up to the contract and circumstances under which it was made.
It is apparent that the transaction, or agreement, was entered into simply to retain the property.
The defendant company and the defendant's wife entered into the lease agreement in order to thwart the sale of the house. They devised a plan wherein they would remain in occupation of the property despite the sale and defeating the sale in execution that was in progress. The agreement was entered into after the writ of execution had been issued and after the property had been placed under judicial management. They wanted to defeat the sale at all costs. They devised a strategy to defeat the sale.
The defence of huur gaat voor koop is being raised to frustrate the plaintiff's rights.
The defendant now resists the eviction on the basis of this lease agreement. He seeks to hide behind his wife. His partner in crime. It is clear that the lease agreement was made simply to save the property. The parties to the lease agreement were not bona fide when they entered into the lease agreement.
The court has considered, in coming up with this position, that the defendant is a sole shareholder and owner of the company. He is, in effect, the sole owner of the company. His company, represented by himself, entered this contract with his own wife, a director of the company. The defendant signed the lease agreement in the face of a pending execution. The defendant benefits from the existence of the lease. He is actually in occupation of the property with his wife. He was well aware that he would benefit from the agreement he was signing. The parties were in occupation of the property without a lease agreement prior to the sale.
One wonders why there was now a need for a lease agreement.
The defendant clearly sought to protect his property. Any threat to the property was a threat to him. This cannot be a genuine lease agreement. There is no doubt in my mind that the lease agreement was simulated.
The evidence reveals that the defendant entered into the lease agreement to evade a creditor who was pursuing his company and property. The lease agreement was fraudulently entered into.
This is a proper case in which to lift the corporate veil and investigate the activities of the company.
The defendant is the alter ego of the company. The defendant controlled the company as he was the sole shareholder. He and his wife were the only two directors of the company. The company is a one-man company. He is the company. The defendant's company is his. There is no separation between the defendant and his company. The company is simply a tool through which the defendant owned the property. He cannot be separated from the company. The defendant has involved in activities, through the company, which are irregular and fraudulent. The defendant used his company to justify wrong and protect fraud.
This lease agreement is irregular. This agreement cannot stand in the way of the plaintiff's claim. The lease agreement is a nullity and no rights flow from it.
The plaintiff is, on the basis of this reason alone, entitled to evict the defendant, his company, and his family from the house in issue.
The defendant contends that he has the right to remain in occupation of the property on the basis of a lease agreement executed between his company and his wife on 28 September 2012. This submission is premised on the argument that the plaintiff inherited an obligation to allow the defendant and his wife to continue in occupation of the property.
He relies on the concept of huur gaat voor koop.
The defendant contends that it is only his wife who can effectively respond to the issue regarding the terms and conditions of the lease agreement.
The defendant and his wife have always been aware of the plaintiff's title and claim in the property. The two are partners in the defendant's company and are in matrimony. The wife is presumed to be aware of this action.
The defendant pleaded that there has been a non-joinder of his wife as a party. No effort was made, either at pre-trial stage or any other subsequent stage, to join her as a party.
The defendant and his wife seem to be playing a hide and seek game with the plaintiff.
No explanation was given regarding the defendant's failure to apply for joinder to this action. The defendant and his wife seemed bent to frustrate the plaintiff's claim by not joining the wife to this claim. This is totally unacceptable. Mis-joinder does not operate as a defence. The rules of this court provide, in Rule 87, as follows:
“87. Misjoinder or nonjoinder of parties
(1) No cause or matter shall be defeated by reason of the misjoinder or non joinder of any party and the court may, in any cause or matter, determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter.”
In any case where there has been a non-joinder, the court may, in terms of Rule 87, determine the issues and questions in dispute in so far as they affect the rights and interests of the persons before it.
The defendant and his wife and family were in occupation of the property before the sale. What this essentially means is that the company, its shareholders, as well as its directors are still in occupation of the house and have not moved an inch since the sale of the property.
The defendant entered into a fraudulent lease agreement so that he would remain in the house.
Once it is accepted that the defendant is the alter ego of the company, and controlled all its activities, he should be responsible for its entire doings.
He and the company are still in occupation of the property and there seems to be sense in citing the defendant as a party to these proceedings.
The court has found that the lease agreement is simulated and a nullity, and, therefore, anyone in the premises may be cited for ejectment.
I cannot find fault with the plaintiff's citation of the defendant as a party to this action. The court will proceed and determine the dispute in so far as it affects the rights and interests of the persons before it.
Even assuming I am wrong in my approach, the rule of huur gaat voor koop does not assist the defendant's case or that of his wife.
The concept of huur gaat voor koop is found under Roman Dutch Law and simply means that hire takes precedence over sale. The doctrine was defined in Genna-Wae Properties (Pty) Ltd v MedloTronics (Natal) (Pvt) Ltd (435/13) (1995) ZA SCA 42 1995 (2) SA 926 AD, 1995 (2) ALL SA 410…, as follows;
“I hold that in terms of our law the alternation of leased property consisting of land or buildings, in pursuance of a contract of sale does not bring the lease to an end.
The purchaser (now owner) is substituted ex lege for the original lesser and the latter falls out of the picture.
On being so substituted, the new owner acquires, by operation of law, all the rights of the original lessor under the lease. At the same time, the new owner is obliged to recognise the lessee and to permit him to continue to occupy the leased premises in terms of the lease - provided that he (the lessee) continues to pay the rent and otherwise to observe the obligations under the lease. The lessee, in turn, is also bound by the lease, and, provided the new owner recognises his rights, does not have any option, a right of election, to resile from the contract.”
What the concept entails is that a tenant who entered into a lease agreement prior to the sale is protected from eviction where the property is sold to a third party. He is entitled to remain in occupation of the property until his lease expires. He must abide by the terms of the lease agreement: see One Naught Three Craighall Park (Pty) Ltd 1940 TPD 299, where the court held that a lessee of property transferred from the previous lesser is required to recognise and observe the terms of the lease after transfer.
For a tenant to benefit from the lease, the lease should not have been fraudulently entered into or entered into in bad faith.
In Genna-Wae Properties (Pty) Ltd v MedloTronics (Natal) (Pvt) Ltd (435/13) (1995) ZA SCA 42 1995 (2) SA 926 AD, 1995 (2) ALL SA 410, CORBETT J quotes from a passage from Voet 19.2.17 which states as follows;
“…, sive private venditio interveniat,sive publica, aut ex decreto magistratus adhibitis hastoe solennibus ad creditorum pettitionem; sic ut et jus retentionis conductor competat, si remanere in conductutione malit, quam post eeexpilsionem intempestivam ad id quod interest judio experiri, si modo bona fide, non in fraudem creditorum (pendent forte subhastationionis judicio, aut lite jam mota), location facta sit.”
The BEINART and ORMONDE's translation of that passage reads as follows;
“…, whether it be a private sale or a public one, or a formal judicial sale following on a decree of a magistrate at a petition of creditors; the result is that the lessee has a right of retention, if he wishes to remain in possession rather than bring an action for damages after he had been ejected with prejudice to himself, provided that the lease had been made in good faith and not in fraud of creditors (for instance, where process for judicial sale was pending, or the suit had already been brought)”…,.
The underlined part emphasizes the need for the tenant to be bona fide and the requirement that the lessee should not enter the contract of lease fraudulently and with a mind to evade creditors - especially where a sale in execution was pending.
A tenant wishing to rely on the concept should show that he entered into the lease agreement with the previous owner before the sale. He should show that he is bona fide and did not enter into a lease agreement fraudulently in order to avoid an imminent sale or a claim by creditors. He must also show that the new owner was aware of the lease agreement and bought the property with the knowledge of the lease agreement.
It is a requirement that the tenant should abide by all terms of the contact and continue to pay his rentals to the new owner. Failure to do so amounts to breach.
The new owner only has an obligation to adhere to the lease agreement if the tenant is willing to pay rentals - and does pay the rentals.
Where the tenant fails to pay rentals agreed to with the previous owner, he commits a breach and he is liable to the new owner: see Genna-Wae Properties (Pty) Ltd v MedloTronics (Natal) (Pvt) Ltd (435/13) (1995) ZA SCA 42 1995 (2) SA 926 AD, 1995 (2) ALL SA 410 for this proposition.
There are two schools of thought regarding whether this concept applies to sales in execution.
In Liquidators Union & D Rhodesia Wholesalers Ltd v Brown & Co 1922 AD 549…, KOTZE JA made the following remarks;
“While an ordinary arrest of property under the Roman-Dutch Law gives no preference, an arrest effected on property in execution of a judgment creates a pignus praetorium or to speak more correctly a pignus judiciale, over such property. The effect of such a judicial arrest is that the goods attached are thereby placed in the hands or custody of the officer of the court. They pass out of the estate of the judgment debtor so that in the event of the debtor's insolvency the curator of the latter's estate cannot claim to have the property attached delivered up to him to be dealt with in the distribution of the insolvent's estate.”
A similar approach was adopted in Maphosa and Anor v Cock and Others 1997 (2) ZLR 314 (HC) where the court, following on Liquidators Union & D Rhodesia Wholesalers Ltd v Brown & Co 1922 AD 549, held that in such an instance, the property could not be dealt with by the company as if it had not been attached. See also Simpson v Klein NO and Others 1987 (1) SA 405 (W).
In HERBSTEIN and Van WINSEN, Civil Practice of the Superior Courts in South Africa, 3ed state…,;
“A judgment creditor is entitled to attach and have sold in execution the property of his debtor notwithstanding that a third party has a personal right against such a debtor to the ownership or possession of such property which right arose prior to the attachment or even the judgment creditor's cause of action and of which the judgment creditor had notice when the attachment was made. An attachment in execution creates a judicial mortgage or pignus judici here are exceptions to this rule.”
In Graham v Local Overseas Investments (Pvt) Ltd 1942 AD 95 the court suggests that the concept is not available if insolvency is involved.
In Genna-Wae Properties (Pty) Ltd v MedloTronics (Natal) (Pvt) Ltd (435/13) (1995) ZA SCA 42 1995 (2) SA 926 AD, 1995 (2) ALL SA 410, the court took the view that the concept of huur gaat voor koop applies to judicial sales in execution. The court in that case remarked as follows;
“Whether the sale takes place privately or publicly or by order of a magistrate a petition of creditor is irrelevant.”
I am persuaded to follow the approach followed in Liquidators Union & D Rhodesia Wholesalers Ltd v Brown & Co 1922 AD 549. This is a decision of our own Appellate Division.
The concept of huur gaat voor koop does not apply to sales in execution.
In any case, where a property has been placed under judicial arrest, it falls into the hands and control of the Sheriff. It ceases to be part of the debtors' estate. It cannot be dealt with in any manner not sanctioned by the Sheriff. The previous owner and debtor are not at liberty to deal with the property as if it has not been attached. The debtor, at that moment, ceases to have any right to deal with the property in any manner not sanctioned or directed by the Sheriff. The debtor cannot deal with the property at his whims. To do so would be to defeat the judicial process underway.
The defendant company, the defendant, and his wife ought not to have dealt with the property as if it was still in under their control.
The defendant is a schemer.
His game plan is as plain as the nose on his face. His imagination ran riot when he and his company, being aware of this development, proceeded and entered into a lease agreement with his wife, a director of the same company, and un-authorised by the Sheriff. The defendant's company and its directors dealt with the property as if unaware that it had been attached.
It should not matter that the sale of the property had not actually gone through.
There is no doubt that the idea behind the principle of huur voor gaat koop was to protect litigants, who, prior to the attachment and sale of the property, had entered into a lease agreement for the lease of the property.
A judgment creditor who leases his property, which is subject of an attachment, in the hope that he can later rely on the lease agreement and remain in occupation of the property to frustrate the new buyer can only fantasize.
They were waiting to pull the carpet from under their feet.
The courts have no interest in aiding and abetting unscrupulous litigants.
The lease agreement is, for this reason, also irregular.
The defendant and his wife did not advise the Sheriff and the purchaser of the lease agreement. The Sheriff dealt with the sale as if it was free of a lease. The purchaser did not have knowledge of the lease. This was part of the game.
The defendant cannot benefit from the lease agreement.
The defendant, and his wife, never treated the lease agreement as such. It does not appear that they ever paid any rentals in lieu of the lease agreement. Although being aware that the plaintiff had bought the property, and his interest in it, the defendant and his wife never paid any rentals for it. The defendant and his wife have deliberately not been paying rentals for the leased property to the new owner, the plaintiff.
They are in breach of the lease agreement.
No evidence was led to show that the defendant and his wife tried to pay rentals to the plaintiff or that the plaintiff refused to accept such rentals as alleged.
Even assuming that the lease was valid, the defence of huur gaat voor koop can only avail a tenant who pays his rentals - and on time.
The plaintiff is entitled to eject the defendant from its property.
The payment plan and rentals payable and due was only discussed and agreed to at the hearing. The parties agreed that a reasonable and fair rental for the premises is $2,000.
The plaintiff became entitled to rentals the moment the property was transferred into its name.
The plaintiff is entitled to vindicate its property from whoever may be in occupation or possession of the property. The defendant and his company are in occupation of the property. They have not shown an entitlement to remain in the property. The plaintiff is entitled to the order sought.
It is for these reasons that I granted the order sought.
